2010 (4) TMI 631 - HC - Central Excise

Daily Stock Register maintained by the unit, found that there was a shortage - issuing central excise invoices and without payment of any duty - Director of the respondent has admitted shortage of Grey fabrics as well as illicit clearance thereof without issuance of central excise invoices or any other duty paying documents, without payment of central excise duty and without entering in the Daily Stock Account Register Held that - cgrey fabrics to the respondent and received the resultant processed fabrics, without cover of central excise invoices and without payment of central excise duty leviable thereon during the relevant period - suppression stands admitted by the respondent assessee and established by evidence on record and as a natural corollary, the proviso to sub-section (1) of section 11A would stand attracted. In the circumstances, the impugned order of the Tribunal whereby it has been held that the show cause notice issued beyond the period of six months from the date of knowledge is barred by limitation is clearly contrary to the provisions of section 11A of the Act and as such cannot be sustained - suppression stands admitted by the respondent assessee and established by evidence on record and as a natural corollary, the proviso to sub-section (1) of section 11A would stand attracted. In the circumstances, the impugned order of the Tribunal whereby it has been held that the show cause notice issued beyond the period of six months from the date of knowledge is barred by limitation is clearly contrary to the provisions of section 11A of the Act and as such cannot be sustained.

Issues Involved:
1. Date of completion of investigation and its bearing on the period of limitation for issuing a show cause notice under Section 11A of the Central Excise Act, 1944.
2. Whether the Tribunal committed a substantial error of law in holding that the show cause notice is barred by limitation under Section 11A.
3. Whether the Tribunal committed a substantial error of law in allowing the appeal of the respondent assessee with consequential relief.

Issue-wise Detailed Analysis:

1. Date of Completion of Investigation and Its Bearing on the Period of Limitation:
The primary issue was whether the date of completion of the investigation affects the period of limitation for issuing a show cause notice in cases covered by the first proviso to Section 11A of the Central Excise Act, 1944. The High Court clarified that the proviso to Section 11A extends the period of limitation to five years in cases involving fraud, collusion, or suppression of facts. The relevant date for computing the limitation period does not include the concept of the department's knowledge of the suppression. The Court emphasized that importing the concept of knowledge into the statutory provision would amount to rewriting the law, which is impermissible.

2. Tribunal's Error in Holding the Show Cause Notice as Time-Barred:
The Tribunal had held that the show cause notice was barred by limitation, introducing a concept of a six-month limitation period from the date of knowledge by the department. The High Court found this interpretation erroneous, stating that the statutory period of five years applies once suppression is established or admitted. The Court cited the Supreme Court's decision in Rajasthan Spinning and Weaving Mills, which supports the extension of the limitation period to five years in cases of intentional non-payment of duty.

3. Tribunal's Error in Allowing the Appeal with Consequential Relief:
The High Court addressed the Tribunal's decision to allow the respondent's appeal based on the limitation argument. It was noted that the Tribunal had relied on the Supreme Court's decision in Nizam Sugar Factory, which was inapplicable to the present case. The High Court distinguished the facts, noting that in Nizam Sugar Factory, the relevant facts were already known to the authorities when the first show cause notice was issued. In contrast, in the present case, suppression was admitted by the respondent and supported by evidence. Thus, the Tribunal's decision to allow the appeal was found to be contrary to the provisions of Section 11A of the Act.

Conclusion:
The High Court quashed the Tribunal's order, holding that the show cause notice was not barred by limitation as the suppression of facts was admitted and established by evidence. The statutory period of five years for issuing the show cause notice was applicable, and the Tribunal erred in introducing a six-month limitation period from the date of knowledge. The appeal by the revenue was allowed, and the Tribunal's order was set aside.

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